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Building the economy of the future

Aug 28, 2017-When I observe Nepal’s economy, I see a series of puzzling contradictions. I see a country with immense energy resources that is forced to import electricity from its neighbour. I see a demographically youthful nation that—because so many of its young citizens feel compelled to seek employment opportunities overseas—struggles to find workers who can build vital infrastructure and housing. I see a country that boasts Mount Everest and some of the best trekking and safari options in the world, yet ranks 110th globally in terms of tourism as a percentage of GDP. And, despite Nepal’s proximity to a potential market of 400 million people in the three Indian states across Nepal’s open southern border, I see a ballooning trade deficit, with imports outnumbering exports by a nearly 12-to-one margin. Thanks to all of these disconnects, Nepal’s considerable economic potential remains unfulfilled.

To be fair, there have been some promising steps in recent months. Nepal’s macro-economic indicators are relatively strong, with the economy growing by seven percent in the recently completed fiscal year (FY) 2016-2017. Inflation is low. Parliament has approved some important legislation, including a revised Labour Act and the Industrial Enterprise Act. However, much work remains to be done and, while I laud the steps that the Government of Nepal has taken to improve the business environment, I fear this will not be enough to help the country achieve its goal of becoming a middle income nation by 2030. As Nepal’s economy recovers after years of sluggish growth, now is the time for bold action. Now is the time for Nepal’s

government to develop a vision of what Nepal’s economy should look like in 2030. Now is the time to start building the economy of the future for Nepal.

Eye for the future

What steps are required to build the economy of the future for Nepal? I would first encourage government officials and policymakers to take candid stock of Nepal’s economy and think about its strengths and weaknesses, the kinds of policies needed to encourage entrepreneurs to start a business, what sectors can create the most jobs and what can the government and private sector do that will help to build the economy. To overcome the fundamental challenges stalling Nepal’s growth and development, it will be essential for the government to ponder some fundamental questions. For instance, in what sectors does Nepal hold a comparative advantage? What steps are needed to attract the foreign investment that is required to develop Nepal’s hydropower resources or to create jobs in Nepal so that Nepali workers do not have to leave the country to earn a living? How can Nepal increase exports and reduce the government’s dependency on revenue from imports? What can Nepal do to reduce risk for entrepreneurs and encourage people to start businesses and create jobs at home?

These are big questions and I don’t have the answers for all of them. However, I do know that addressing them will require strong and confident leadership that is committed to developing a long-term strategic vision for the country that transcends the parochial interests of any given political party, region or community. As government officials grapple with important legislation, such as the Foreign Investment Bill, the Agri-business Promotion Bill, Amendments to the Land Use Act, and new legislation to protect intellectual property rights, I hope they will think carefully about how this legislation can support Nepal’s economy of the future.

I’m encouraged that Swarnim Wagle, the recently appointed Vice Chair of the National Planning Commission, is thinking about what Nepal’s economy should look like in 2030. He recently wrote that, “the priority [of the government] now should be on job-creating economic change, propelled by large investments in infrastructure. Energy and connectivity can unleash potentials in manufacturing, tourism, and agriculture.” I tend to agree with this line of thinking, but I would add one more element: I hope that the government will make the legal and regulatory changes that will allow private sector innovation to flourish in Nepal.

Roads of a different nature

Innovation is essential in building the economy of the future. Imagine an economy that emphasises high-tech industries, research, cutting edge technology, investments in infrastructure, and better schools that stress developing students’ critical thinking skills. An environment that encourages innovation allows entrepreneurs to take risks and create new businesses. To encourage this kind of innovation, government policies should prioritise what entrepreneurs need: lower costs to start a business, easier access to capital, less red tape, fewer obstacles to getting the resources they need, and most importantly, less risk.

By emphasising innovation, Nepal would begin to make optimal use of its assets (such as a youthful, tech-savvy population with strong English language skills), while avoiding many of the challenges faced by other sectors in Nepal’s economy that must rely on poor and often unreliable road infrastructure, distant ports in neighbouring countries, and expensive transit costs. I am encouraged by the fact that many Nepalis who have spent time working or studying in the United States are returning to Nepal and establishing world-class IT firms, research institutes, and healthcare companies. Such cutting-edge businesses do not depend on expensive imported raw materials, nor do they have to pay the expensive transit costs that make other products uncompetitive in the global market. Instead, these industries rely on enterprising entrepreneurs with critical thinking skills who are smart and nimble enough to react to global dynamics and emerging trends.

The private sector also has an important role to play in building the economy of the future for Nepal. For too long, Nepal’s business sector has reflexively rejected competition, and in some cases existing firms have colluded to keep entrepreneurs from entering the market. This practice drives up prices, impedes innovation, and minimises job creation at the expense of consumers and the country as a whole. A thriving business environment must actively attract new players to the market—they bring new energy, ideas, and innovation that can help grow the economy. I hope that enterprising individuals and business groups will lend their energy and creativity to shaping the policies and laws that will allow Nepal’s future economy to thrive. This cannot happen through favouritism or protectionism. Healthy competition creates jobs, spurs demand, and fuels growth, and this would benefit all Nepalis. Ultimately it is up to the government to create the conditions that will build an economy of the future for Nepal that is centred around innovation. Enacting, implementing, and enforcing policies and laws that encourage foreign investment, protect intellectual property, reduce costs, eliminate opportunities for bureaucratic obstruction, and help ensure access to capital for productive ventures will be critical. That said, building Nepal’s economy of the future will require more than just legislation; it will require a long-term strategy, determination, and political will to make the vision a reality.

Helping to create sustainable economic growth in Nepal is a top priority for the U.S. Embassy. Nepal offers incredible natural resources, a culture that values education and hard work, and a youthful population. With the economy on more solid footing and as leaders conclude the democratic transition, now is the time for action and bold thinking to unleash Nepal’s economic potential. I call on the country’s government and private sector leaders to shake off the blinders of protectionism and vested interests. Instead, I urge you to envision the economy of Nepal’s future and take action now to lay the groundwork to make this vision a reality. As Nepal reforms its business environment, the goal should not be to aim for marginal improvements that respond to the economy of 2010 or even 2017, but to make bold and meaningful reforms to fuel and enable the realisation of the middle-income economy of 2030 and beyond.

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